Emerging Stocks Drop on Outflows as Ibovespa Snaps Rally

Emerging-market stocks tumbled to a six-week low on concern that capital outflows will accelerate amid prospects for reduced U.S. stimulus. Brazil’s Ibovespa dropped for the first time in 10 days as steelmakers slumped.

The MSCI Emerging Markets Index fell 1.3 percent to 932.15, the lowest since July 10. Steelmaker Usinas Siderurgicas de Minas Gerais SA led Brazilian commodity producers lower, while OAO Rosneft (ROSN) slid 1.2 percent in Moscow as oil sank. Egypt’s EGX 30 index of stocks rose 1.1 percent after a three-day plunge. Poland’s zloty snapped a six-day decline versus the euro.

Investors withdrew $8.4 billion from developing-nation exchange-traded funds this year as weakening economies from India to Indonesia fueled pessimism in markets already concerned the Federal Reserve will start cutting bond purchases. The Fed publishes minutes of its July meeting tomorrow.

“It’s the Fed, the Fed, the Fed,” Quincy Krosby, a market strategist for Newark, New Jersey-based Prudential Financial Inc., which oversees more than $1 trillion of assets, said by phone. “Global markets are just as concerned about Fed actions and emerging markets are particularly sensitive. This week, we’re watching the minutes to see if there’s any color.”

All 10 groups in the MSCI Emerging Markets Index fell today as health-care companies had the biggest decline. The broad measure dropped 12 percent this year, compared with a 12 percent surge in the MSCI World Index. The gauge of developing nations is trading at 9.9 times estimated earnings, below the valuation of developed markets of 13.6.

Emerging ETF

The iShares MSCI Emerging Markets Index exchange-traded fund fell 0.2 percent at $38.49. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a measure of options prices on the fund and expectations of price swings, retreated 0.5 percent to 24.45.

Brazil’s Ibovespa dropped 2.1 percent, snapping the longest rally since August 2010. Usiminas, as Usinas Siderurgicas is also known, fell 6.5 percent. Brazil’s swap rates plunged from a 19-month high after central bank president Alexandre Tombini said yesterday that traders had taken wagers on raises in borrowing costs too far. The real appreciated.

Mexico’s peso bonds rose, pushing yields down the most in two weeks, as slower-than-forecast economic growth fueled speculation that the central bank will reduce borrowing costs.

Russian stocks dropped as crude oil, the nation’s main export earner, retreated. Rosneft sank to the lowest price since June 28. Poland’s zloty led gains among developing-nation currencies versus the euro and the Hungarian forint, the Romanian leu and the Czech Koruna also gained.

China, India

The Shanghai Composite Index fell 0.6 percent as Jiangxi Copper Co. (358) the nation’s largest producer of the metal, slid to a three-week low. Everbright Securities (601788) Co. plunged by the 10 percent daily limit. The shares traded for the first time since erroneous buy orders roiled the nation’s equities last week.

India’s benchmark stock index fell to a four-month low after the rupee slid past 64 per dollar for the first time. PT Jamsostek, Indonesia’s biggest pension fund, is stepping up purchases of Indonesian stocks, President Director Elvyn Masassya said after the Jakarta Composite index plunged 11 percent in four days.

The EGX 30 Index rebounded after tumbling 5.6 percent since the violent breakup at protest camps of supporters of ousted President Mohamed Mursi on Aug. 14.

The premium investors demand to own emerging-market debt over U.S. Treasuries rose 0.07 percentage point to 337 basis points, according to JPMorgan Chase & Co.

To contact the reporters on this story: Julia Leite in New York at jleite3@bloomberg.net; Maria Levitov in London at mlevitov@bloomberg.net; Ian Sayson in Manila at isayson@bloomberg.net

To contact the editor responsible for this story: Tal Barak Harif at tbarak@bloomberg.net

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